Crude Falls Below $90 on Weaker Demand and European Debt

Sept. 26 (Bloomberg) -- Oil settled below $90 a barrel for
the first time in almost eight weeks as the government reported
lower oil demand and on concern the worsening European crisis
will reduce consumption.

Prices declined for the seventh time in eight days after
the Energy Department said total U.S. fuel use decreased 1.1
percent in the four weeks ended Sept. 21 and inventories
remained at the highest level for this time of the year since
1990. Stocks dropped for a fifth day and the euro weakened after
the Bank of Spain said the economy is shrinking at a
“significant” pace.

“The demand numbers played into the weaker economic
outlook,” said Jacob Correll, a Louisville, Kentucky-based
analyst at Summit Energy Inc., which manages more than $20
billion in companies’ annual energy spending. “Stocks are lower
and there is the weaker economic sentiment that’s pushing crude
down.”

Crude for November delivery fell $1.39, or 1.5 percent, to
$89.98 a barrel on the New York Mercantile Exchange, the lowest
settlement since Aug. 2. The futures, which are down 9.1 percent
in eight sessions, are up 5.9 percent in the third quarter.

Brent oil for November settlement dropped 41 cents, or 0.4
percent, to $110.04 a barrel on the London-based ICE Futures
Europe exchange. The European benchmark grade’s premium to West
Texas Intermediate in New York widened to $20.06, the largest
gap based on settlement prices since Aug. 16.

Total fuel use decreased to 18.4 million barrels a day in
the four-week period, the lowest level since April 6, the Energy
Department said.

‘Demand Destruction’

“We still have the issues relating to Europe, which are a
greater concern as more information is released,” said David
McAlvany, chief executive officer of McAlvany Financial Group in
Durango, Colorado. “The declining growth trend represents
demand destruction.”

Crude inventories slid 2.45 million barrels to 365.2
million last week as imports fell, the Energy Department said.
Analysts polled by Bloomberg had forecast a gain of 1.9 million
barrels. Supplies are up 7.1 percent from 52 weeks earlier. Oil
production rose to 6.51 million barrels a day last week, the
most since January 1997.

“Even though inventories fell, I don’t think that’s enough
to overwhelm what’s already going on in the market,” Correll
said.

Supply, Demand

Gasoline consumption dropped 0.8 percent to 8.82 million
barrels a day in the four weeks ended Sept. 21. The one-week
average was 8.77 million, down from 9.18 million in the last
week of August.

“The trend of crude oil is lower,” said Todd Horwitz,
chief strategist at Adam Mesh Trading Group in New York. “We
are out of the driving season and it’s time to be short on crude
oil.”

Gasoline inventories slid for a ninth week, down 481,000
barrels to 195.8 million, and distillate fuels, which include
diesel and heating oil, decreased 482,000 to 127.7 million.

“People are a little skeptical of the inventory data,”
said Rich Ilczyszyn, chief market strategist and founder of
Iitrader.com in Chicago. “If you are an oil trader, you’ve got
to watch equities and the dollar.”

The Standard & Poor’s 500 Index fell as much as 0.8 percent
and the euro slipped as much as 0.5 percent against the dollar.
A weaker euro and stronger dollar reduce oil’s appeal as an
investment alternative.

In Japan, the biggest manufacturers probably grew more
pessimistic this quarter as China’s slowdown and Europe’s crisis
sapped exports, according to a Bloomberg survey of economists
before the Bank of Japan’s Tankan report due to be released on
Oct. 1.

Oil climbed to $100.42 in intraday trading on Sept. 14
after the Federal Open Market Committee announced a third round
of quantitative easing intended to boost the economy. The Fed
plans to buy $40 billion of mortgage debt a month.

“People are more and more worried about the global economy
given the news from Spain and Japan,” said Michael Lynch,
president of Strategic Energy & Economic Research in Winchester,
Massachusetts. “It seems that QE3 is starting to disappoint if
you look at asset prices. We’ve finally reached the end of the
bull run.”